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The Federal Housing Administration incorrectly insured approximately $1.9 billion worth of mortgages in 2016, according to a report from the Department of Housing and Urban Development Office of Inspector General.

The report says the FHA insured an estimated 9,507 borrowers who were actually ineligible for FHA insurance. As HousingWire staffer Ben Lane notes, the loans, totaling $1.9 billion, were ineligible because the borrowers had either delinquent federal debt or who were subject to federal administrative offset for delinquent child support.

The issue is this: The FHA’s guidance prohibits lenders from continuing to process a mortgage application for an FHA-insured mortgage for borrowers with delinquent federal non-tax debt, held by agencies like the Department of Education, the Department of Justice, the Small Business Administration, or the Army and Air Force Exchange Service.

At that point, lenders need to verify the validity and delinquency status of the debt by contacting the creditor agency to which the debt is owed. If the creditor agency confirms that the debt is valid and in delinquent status as defined by the federal Debt Collection Improvement Act, the borrower is ineligible for an FHA-insured mortgage until the borrower resolves the debt with the creditor agency.

The Debt Collection Improvement Act of 1996 prohibits a person from obtaining any federal assistance in the form of a loan, loan insurance, or guarantee if that person has a delinquent outstanding debt with any federal agency.

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